Venture Capital - Financing a Start-up
Setting
Mid 2006 Atlas Magnetics is slowly becoming successful in the market it created itself: ‘complex bespoke technical magnets sourced from China’. After two years of audits, sample orders, etc. MNCs like Siemens, ASML, Emerson (Leroy-Somer) are finally starting to procure for their serial production.
Challenge
While turn-over had doubled to just over € 5 million in the two years to 2006 and this pace was expected to rise fast with above mentioned development, working capital was becoming a real problem. To create the success we now were, gross margins had continuously been ploughed back into the company. Retained earnings so far, could only with great difficulty entice bank financing, our strength had been and still was the concept itself: The rapid growth was the result of hard work, continued investment but also the realisation at more and more (potential) customers that we were the ‘real deal’.
Solution
We decided that we had to strengthen our Equity position; yes we believed we could, in the immediate, raise sufficient funds through a bank, however we would always be balancing on a knife’s edge. I was asked to write a complete overhaul/update of our business proposition:
- What is our objective / missions statement / market
- What have we already achieved in the short period we’re active
- How is the (market) environment (changing)? How does this affect us?
- 5 year detailed budget, specifying (targeted) customers / projects / markets
- Specifying investments in Human Capital / Equipment / Premises / Subsidiaries
A short anonymised version was sent to relevant Venture Capitalist Organisations and, where an initial click was found, I presented the full picture to them.
The same information was also presented to some major banks and, as a result, we were, towards the end of 2006 in the royal position that 2 major banks wanted to finance us, with or without additional Equity / subordinated debts. In addition we had had the luxury of being in a position to pick the Venture Capital Company with whom we had the perfect click. As discussed above, we wanted to truly strengthen our company to enable the dizzying growth we were expecting and thus decided to do both: Having a reputed Venture Capitalist taking a minority share in our company and transferring to the, then, largest Dutch bank, especially since it was providing us with more than sufficient funds at very very favourable conditions.
See also: